UK watchdog unveils blueprint to turn tide of financial scams
Britain’s financial watchdog set itself targets on Wednesday to help consumers by 2025 cut their losses from a growing number of scams and steer clear of investment products that are too risky.
Financial fraud has rocketed during the pandemic as more consumers search on the internet for products, with 1.15 million new accounts opened by just four trading app firms in the first four months of 2021.
The collapse of investment firm London Capital & Finance has also forced the government to pay millions of pounds in compensation to investors.
The growth of scams has required the Financial Conduct Authority to become more assertive in protecting consumers, who lost nearly 570 million pounds ($790 million) to investment fraud in the financial year that ended in April. That sum has tripled since 2018.
“We want to see a consumer investment market in which consumers can invest with confidence, understanding the risks they are taking and the regulatory protections provided,” the FCA said in a statement.
The watchdog said that by 2025 it would cut by a fifth the number of consumers missing out on investment earnings, halve the number of consumers investing in unsuitably risky products, and cut the money lost to investment scams carried out by regulated firms.
To achieve these goals, the watchdog said it would explore changes in rules to make it easier for firms to provide more help to consumers who want to invest in relatively straightforward products.
It will also launch a new 11 million pound investment harm campaign, and be more assertive and agile in how it “detects, disrupts and takes action against scammers”.
The Financial Services Compensation Scheme (FSCS) is funded by an annual levy on industry. It has risen sharply over recent years to 833 million pounds, and the FCA said it would review rules to stabilise the bill for covering failed firms.
But PIMFA, which represents financial advisers, said the FCA’s proposals for addressing “unsustainable” rises in FSCS levies do not go far enough.
“The FCA needs to be significantly more ambitious in setting out a supervisory approach in which harm is identified and acted on quicker,” PIMFA CEO Liz Field said.
But Simon Turner, a financial services partner at consultants EY, said reducing harm in the market long term will involve significant supervisory and enforcement activity in the short to medium term, which is likely to increase the costs of compensation.
The FCA said it will also implement plans to toughen up a “duty of care” on financial firms towards their customers, seen as a step change in protection.
($1 = 0.7231 pounds)